Amazon And Hachette Bury Their Differences

The behemoth distributor and the small publishing house settled their long-running dispute over e-book pricing in a deal announced yesterday. While the details of the agreement weren’t made public, David Streitfeld reports that it “broadly follows a deal Amazon recently worked out with Simon & Schuster”:

A source with knowledge of that deal said it was negotiated relatively quickly and gave the publisher control over most of its pricing but offered incentives to sell at lower prices. Amazon got increased co-op funds, the payments for placement on the retailer’s website. Simon & Schuster declined to confirm the terms.

James L. McQuivey, a Forrester analyst, said that if Hachette won in the short term, it would be a different story in the long run. “Hachette got Amazon to allow them to control pricing while also cutting the amount of money Amazon takes if the publisher does engage in discounts, which appears like a victory,” the analyst said. “But in the end this all cements Amazon’s ultimate long-term role in this business, which will only put Hachette right back in this situation every time they are up for renegotiation.”

The deal is undoubtedly good news for Hachette’s authors, but Hillary Kelly is disappointed that the publishers “forfeited all of the gains they had made in the larger battle against Amazon”:

While it certainly would have hurt Hachette in the short-term to keep up the battle, they should have. What’s at stake here is much bigger than the price of e-books. If Amazon continues to interfere in publishers’ pricing decisions, publishers will be forced to produce more and more high-revenue yielding books, which means decisions about who gets published and who doesn’t will trend even further toward who can sell a lot of books and who can’t. That means the variety of books in the marketplace diminishes even further, and readers see fewer and fewer high-risk, high-reward books on physical and digital shelves.

Amazon has proven they can turn off the faucet whenever they please. Hachette could have proven that, with enough support from their friends in the publishing industry, they can force Amazon to keep the water flowing. But they missed their opportunity.

Previous Dish on Hachette here.

Are Publishers Even Necessary?

In the ongoing feud between the major publishing houses and Amazon, Yglesias has no sympathy for the publishers:

Wisdom on this subject begins with the observation that the book publishing industry is not a cuddly craft affair. It’s dominated by a Big Four of publishers, who are themselves subsidiaries of much larger conglomerates. Simon & Schuster is owned by CBS, HarperCollins is owned by NewsCorp, Penguin and RandomHouse are jointly owned by Pearson and Bertelsmann, and Hachette is part of an enormous French company called Lagadère.

These are not tiny, helpless enterprises. Were their owners interested in the future of books and publishing, they could invest the money necessary to make their own e-reading apps and e-book store and render Amazon entirely superfluous. But the managers of these conglomerates don’t really care. If they can get famous authors to lobby the government to stop Amazon from killing them for free, then they’re happy to take the free labor. But they don’t want to invest actual money and energy in competing with Amazon, they’d rather wring whatever remaining profit there is out of book publishing and dedicate the money to dividends or other industries they’re also involved in.

Matt goes as far as to suggest that publishers’ role as middlemen between authors and consumers has become superfluous in the digital age. Hear hear. But Evan Hughes isn’t having it:

A publisher’s list of books is in essence a risk pool, a term most often associated with health insurance. In the insurance business, the profits from the healthy people outweigh the big losses from the sick ones because the healthy outnumber the sick. In publishing, it’s the opposite, yet the underlying concept is the same. Most books lose money, but the ones that make money earn enough to cover all those novels that didn’t sell.

The publishing scenario that Yglesias is advocating is a world without health insurance. (Ironic, I know.) In a system without the publisher operating as middleman, where the author takes his life’s work and just posts it to Amazon, each book becomes a lonely outpost in the stiff winds of the marketplace, a tiny business that must sell or die. “So what?” Yglesias might say, because that’s the kind of ruthless neoliberal thinker he is. “If people didn’t buy the book, that’s just proof of its worthlessness.”

Yep, especially when the Internet allows anyone with the right voice to find an audience, however niche, to buy their book. And none of the money from those sales will get eaten up by the bloated middlemen of the publishing industry. But Guan Yang runs through some downsides of self-publishing:

A lot of work goes into publishing a book. Someone needs to edit the manuscript. The manuscript must be typeset and copy-edited. A cover has to be designed (most self-published books are terrible in this regard). The book needs to be marketed to readers, which can require producing ads and seeking out publicity. Paper books have to be printed, stored, shipped to distributors and bookstores, and sold; returns need to be managed. E-books have to be converted to various formats, ideally not just using automated tools.

Self-published authors can try to do all of these jobs themselves. Many attempt that, and it shows. Or they can outsource some or all of the tasks. When doing so, it’s best to use professionals who have tried to publish a book before. Maybe a team that’s used to working together. Perhaps the people even sit in the same building, so that they can quickly coordinate.

Congratulations: You have just re-created publishers, but without advances.

And without all the waste and inefficiency of many large publishing houses. Freelance copyeditors or cover designers can be found online for much less, and they are likely to be more receptive and flexible when it comes to the author’s needs. McArdle puzzles over another question Yglesias raises -whether the interests of authors align with those of their publishers:

If Amazon manages to kill most of the other outlets for books, it’s not clear to me that authors end up with more royalties and book sales. The distribution of royalties will certainly be different; some people who would have done well under the current system will end up losing out, while others who couldn’t get a major publisher interested in their product will end up making bank. But as a class, author interests might well be better aligned with those of four mega publishers than one mega retailer. Or might not; I haven’t seen a convincing case made either way.

Even assuming that we establish that Amazonian dominance might be bad for authors, we still have to answer another question: Why should anyone else care? Travelocity was bad for travel agents. Toyota was bad for General Motors. To which most people respond, “Gee, that’s too bad for you, isn’t it?” and happily go about their days. Why should authors be any different?

In Defense Of Amazon

Clay Shirky believes critics of the company are misguided:

I’d always aspired to be a traitor to my class (though I’d hoped it would be for something a bit more momentous than retail book pricing), but treason is as treason does, so here goes:  The reason my fellow elites hate the people who run Amazon is that they refuse to flatter our pretensions. In my tribe, this is a crime more heinous even than eating one’s salad with one’s dessert fork. The threat Amazon poses to our collective self-regard is the usual American one: The market is optimized for availability rather than respect. The surface argument is about price, but the deep argument is about prestige. If Amazon gets its way, saying, “I published a book” will generate no more cultural capital than saying “I spoke into a microphone.”

Given their deep ambivalence about expanded participation in the making and selling books, it’s worth noting some scenarios Amazon’s critics aren’t afraid of: They aren’t afraid that books will become less accessible. They aren’t afraid that there will be fewer readers. They aren’t afraid that fewer books will be published. Bezos understands that running a great bookstore is more like running a great grocery store than running a great opera company; it enrages my people that he’s unwilling to pretend otherwise.

Meanwhile, Joshua Gans asks, “When Amazon provides the world’s largest bookstore – and it is getting larger and larger – how do authors compete in the market for attention?”

Specifically, while it is nice to believe, as Shirky appears to do, that just “getting it out there” will let the cream rise to the top, Amazon doesn’t provide a platform that quite does that. Instead, Amazon provides a rating platform and, when there are small numbers involved (as they must to have a long tail work out), then we get distortions creeping in. Put simply, people who hate the concept of a particular book, need not have read it to give it one star and distort the picture. [Craig] Mod argues that Amazon can surely do better with its data and I would argue it surely has an interest to do better.

But how to do so is not that obvious. The standard in terms of how to start has been shown to us by researchers at eBay. As I noted a few months ago, Chris Nosko and Steve Tadelis were able to theorise about a better rating system and then also test that it would improve outcomes for consumers. So while we can praise Amazon for putting a competitive wind into an old and rigid industry, we must also be careful to continue to hold them to the fire of accountability for the efficiency of the platform in attention they are creating. It is only if they do so that the old gatekeepers and ‘standard bearers’ will face the challenge Shirky is hoping for.

(Full disclosure: The Dish has an informal business relationship to Amazon through its affiliate revenue program, which virtually anyone can join. The program only generates about 3% of our annual revenue, just about enough to pay and provide health insurance for our interns. And if there’s any doubt that the Dish has long aired criticism of the company, see here, here, here, here, herehere and here. We will continue to do so.)